Australia Inc: Small business is losing economic ground

Small business is routinely described as the engine room of the Australian economy. But over the past two decades, that engine room has become a smaller part of the economy it powers.

That issue came up on a recent episode of the Australia Inc. podcast, when one of the panelists put the concern plainly:

“If 97% of Australia is small business, they’re hurting.”

The 97 per cent figure refers to the proportion of Australian businesses classified as small businesses. But the more revealing numbers are what has happened to their contribution to employment and economic output.

According to the Australian Small Business and Family Enterprise Ombudsman, small businesses employed just over 5.1 million Australians in 2023–24, representing 39 per cent of the private-sector workforce.

In 2006, small businesses employed 53 per cent of private-sector workers.

The same pattern appears in economic output. Small businesses now account for about 32 per cent of Australian GDP, compared with approximately 40 per cent in 2006.

That does not mean small business is disappearing. Australia actually has more businesses than ever.

The Australian Bureau of Statistics recorded 2.81 million actively trading businesses at June 2026. But only 996,203 employed anyone.

This distinction matters.

During 2025–26, the number of non-employing businesses increased by 4.8 per cent, while employing businesses increased by just 0.2 per cent. Indeed, the ABS says this was the first annual increase in the number of employing businesses since 2021–22.

A growing business count can therefore coexist with declining small-business economic weight. A sole trader or independent contractor counts as a business, but that does not necessarily represent the creation of an organisation employing additional workers, investing capital and expanding productive capacity.

The long-run numbers suggest economic activity and employment have gradually shifted towards medium and large businesses.

There is no single explanation. Larger firms can spread technology, compliance and administration costs across much larger revenue bases. Small firms face labour shortages, financing constraints and regulatory obligations without those economies of scale.

But the result matters.

Small businesses remain especially important in construction, professional services, agriculture and local service industries. They are also one of the principal mechanisms through which an individual turns an idea or skill into an employing enterprise.

Australia still creates plenty of businesses.

The more important question for Australia Inc. may be whether enough of them are becoming businesses that grow and employ people.